Cavco Industries Reports Fiscal 2021 First Quarter Results
Cavco Industries, Inc. (or the “Company”) announced financial results for the first fiscal quarter ended June 27, 2020. On August 2, 2019, the Company completed the acquisition of Destiny Homes, which operates a manufactured and modular housing factory in Moultrie, Georgia. The results from this acquired operation since the acquisition date are included in the consolidated financial statements presented herein.
Financial highlights include the following:
– Net revenue for the first quarter of fiscal year 2021 was $254.8 million, down 3.5% from $264.0 million for the first quarter of fiscal year 2020. The decrease is primarily from 12% lower home sales volume in the factory-built housing segment during the quarter. However, the Net revenue decline was partially mitigated by homes sold from the Destiny Homes operation acquired less than a year ago and higher home selling prices compared to the same quarter last year. While the Company entered the quarter with solid factory backlogs and incoming order rates were strong in the last half of the quarter, production inefficiencies limited factory delivery volume causing lower quarterly home sales. The production inefficiencies and decline in Net revenue resulted from challenges related to the novel coronavirus COVID-19 (“COVID-19”) pandemic, as discussed further below. Financial services segment revenue increased primarily from $1.0 million of unrealized gains on marketable equity investments in the insurance subsidiary’s portfolio compared to minimal unrealized gains in the prior year period. These unrealized gains resulted mainly from the recovery of the underlying equity markets during the quarter.
– Income from operations decreased 20.0% to $20.0 million for the first quarter of fiscal year 2021 compared to $25.0 million in the same quarter last year. In the factory-built housing segment, the Company recorded lower gross profit margins from fewer home sales resulting from COVID-19 related production inefficiencies and expenses. Costs related to the Securities and Exchange Commission (“SEC”) inquiry were $0.1 million in the first quarter of fiscal year 2021, net of a $0.5 million insurance recovery of prior expenses, compared to $0.8 million in the comparable period. Both periods incurred $2.1 million in charges for the amortization of additional director and officer (“D&O”) insurance premiums. In the financial services segment, Income from operations was adversely impacted by $1.1 million of higher weather related claims volume compared to the same period in the prior year. Interest income earned on the acquired loan portfolios that continue to amortize was also lower. These declines were offset by unrealized gains on marketable equity investments, as described above.
– Income before income taxes for the first quarter of fiscal year 2021 was $21.7 million, down 20.8% from $27.4 million for the first quarter of fiscal year 2020. Other income, net, declined primarily from a $0.9 million reduction in interest earned on cash and commercial loan receivables, given the lower interest rate environment. However, Interest expense declined from the repurchase of the 2007-1 securitized loan portfolio in August 2019, thereafter eliminating the related interest expense.
– Income taxes totaled $5.0 million in the first quarter of fiscal 2021, a 23.1% reported effective tax rate compared to $6.1 million in the first quarter of fiscal 2020, a 22.2% effective tax rate. The higher effective tax rate in the current quarter was primarily from lower tax benefits for the exercise of stock options compared to the same period last year.
– Net income was $16.7 million for the first quarter of fiscal year 2021, compared to net income of $21.3 million in the same quarter of the prior year, a 21.6% decrease. Diluted net income per share was $1.80 for the three months ended June 27, 2020, compared to $2.31 for the comparable period last year.
Business Update on the COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 a global pandemic. The Company continued to operate substantially all of its homebuilding and retail sales facilities while working to follow COVID-19 health guidelines. The Company has worked to minimize exposure and transmission risks by implementing enhanced facility cleaning, social distancing and related protocols while continuing to serve its customers. Operational efficiencies declined from adjusting home production processes to comply with health guidelines, managing higher factory employee absenteeism, limited new-hire availability and certain building material supply shortages. Accordingly, the Company’s total average plant capacity utilization rate fell to as low as approximately 45% during the early part of the first fiscal year quarter, compared to pre-pandemic levels of more than 80%. By the end of the quarter, overall plant capacity utilization rates were approximately 70% compared to approximately 80% during last year’s first fiscal quarter as the Company continues to work to increase production.
Sales order activity also declined substantially at the beginning of the quarter due to the onset of COVID-19. Pandemic restrictions that began in March 2020 had a cascading effect on every point in the home sales process, including delaying some orders and sales late into the first quarter. Sales activity continuously improved over the balance of the quarter to the point where sales order rates were somewhat higher than the comparable prior year at quarter’s end. Increased order volume is the result of a higher number of well-qualified home-buyers making purchase decisions supported by reduced home loan interest rates. Increased orders outpaced the challenging production environment during the quarter, raising order backlogs 20% to $157 million at June 27, 2020, compared to $131 million at June 29, 2019. This backlog of home orders excludes orders that have been paused or canceled at the request of the customer.
It is difficult to predict the future impacts on housing demand or the nature of operations at each of our locations due to the COVID-19 pandemic. However, our wholesale customers have been positive about continuing the process of delivering homes and supportive of our efforts to continue production to meet housing needs.
During the quarter, the Company ceased production and closed its Lexington, Mississippi plant, as previously announced. The Company remains available to serve wholesale customers previously served by the Lexington facility from its other production lines in the southeast.
Commenting on the quarter, Bill Boor, President and Chief Executive Officer said, “The COVID-19 pandemic has created unprecedented disruption and uncertainty, leading to operational inefficiencies in the quarter. However, we acted quickly with the safety and continued employment of our co-workers at the forefront of every decision. We remain committed to our customers, and, to the extent we can do so safely, resolve to continue our important work. Market uncertainty remains and we expect challenges to persist. After months into this pandemic, the resilience, creativity, and, most importantly, the commitment of people throughout Cavco, coupled with continuing cash generation, give me confidence that we will successfully navigate the challenges that lie ahead.”
For the full first quarter results, click here.
About Cavco Industries
Cavco Industries, Inc., headquartered in Phoenix, Arizona, designs and produces factory-built housing products primarily distributed through a network of independent and Company-owned retailers. The Company is one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments, marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny. The Company is also a leading producer of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand. Cavco’s finance subsidiary, CountryPlace Mortgage, is an approved Fannie Mae and Freddie Mac seller/servicer and a Ginnie Mae mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Our insurance subsidiary, Standard Casualty, provides property and casualty insurance to owners of manufactured homes.
Mark Fusler – Director of Financial Reporting & Investor Relations – firstname.lastname@example.org – (602) 256-6263
Source: Cavco Industries, Inc.